Hungary flag Hungary: Economic and Political Overview

The economic context of Hungary

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Contrasting with the trends observed in recent years, Hungary's GDP contracted sharply following the outbreak of the COVID-19 pandemic, as the backbone of growth - rising household income and exports - was severely impacted. Nevertheless, the economy was dynamic in 2021 despite headwinds from global supply chain disruptions, with an estimated growth of 7.6% (IMF). Underpinned by continuing fiscal stimulus measures and household consumption, economic growth is set to remain strong at 5.1% in 2022, before moderating to 3.8% in 2023 (IMF forecast).

Public finances have also been affected by the pandemic and the measures taken to contain its economic effects – including a one-time income tax refund to families with children, a subsidised loan programme for SMEs, an income tax cut for workers under age 25, the re-introduction of the 13th monthly pension and administrative wage increases – with an estimated budget deficit of 6.9% in 2021. As most measures fade out, the deficit is expected to decrease to 5.3% this year and 3.2% in 2023. Likewise, the debt-to-GDP ratio should resume its downward trend over the forecast period after reaching 76.6% in 2021. Public investment in 2022 will be partly financed by rising EU funds, which are also expected to provide a boost to investment. Rising commodity prices and wage pressures contribute to persistently high inflation: regulated prices for residential energy contributed to shield households from commodity price increases; however, companies are expected to pass their higher energy and wage costs on to consumers, fuelling non-energy inflation. Overall, the rate was estimated at 4.5% in 2021 by the IMF and it is forecast at 3.6% in 2022 and 3.3% in 2023.

Employment reached its pre-pandemic level in the summer of 2021 and job creation is set to continue as the economy grows. The rate was estimated at 4.1% in 2021 (from a pre-COVID level of 3.3%); as the IMF expects unemployment to stabilize around 3.8% over the forecast period. Meanwhile, wage growth is set to remain robust amid emerging signs of labour shortages, following the approval of a 20% minimum wage hike and sizeable salary increases in the public sector.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 163.49155.01e180.96198.99216.44
GDP (Constant Prices, Annual % Change) 4.6-5.07.65.13.8
GDP per Capita (USD) 16,729e15,86618,52820,38022,174
General Government Balance (in % of GDP) -3.4-7.3e-6.9-5.3-3.2
General Government Gross Debt (in % of GDP) 65.580.476.675.673.1
Inflation Rate (%) 3.43.3e4.53.63.3
Unemployment Rate (% of the Labour Force) 3.34.14.13.83.8
Current Account (billions USD) -0.74-0.151.091.753.27
Current Account (in % of GDP) -0.5-0.10.60.91.5

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

The agricultural sector, which used to be the dominant force in the country's economy for many years, now represents 3.4% of GDP and employs 4.7% of the working population (World Bank, latest data available). The country has arable land of 4,145k ha, around 47.4% of its territory. Cereals, fruits, maize, vegetables and wine are the main crops.

Industry accounts for 24.5% of the country's GDP and employs 32% of the working population. Hungarian industry is very open to foreign investment, with manufacturing almost consistently ranking top receiver of foreign direct investment. The automotive and electronics sectors are the two main industrial sectors. The manufacturing sector alone accounts for 17.5% of the country’s GDP. The electronics industry is one of the largest industrial sectors in Hungary, accounting for one-fifth of total manufacturing production.

The services sector contributes 56.6% of GDP and employs almost 63.2% of the labour force. Trade, tourism and finance account for the largest share of activity and employment within the tertiary sector. In recent years the added value produced by the ICT sector increased by more than one-fifth, to USD 20 billion, with the digital economy currently making up more than 20% of Hungary's overall gross value added.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 4.7 32.1 63.2
Value Added (in % of GDP) 3.5 25.2 55.8
Value Added (Annual % Change) -6.8 -5.6 -4.8

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
67,2/100
World Rank:
55
Regional Rank:
31

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
6.99/10
World Rank:
33/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Country Risk

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Latest Update: May 2022

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